Trend lines are among the most basic and trusted of all the technical indicators available to those who trade binary options. The same as many indicators, this one was widely used by Forex traders before making its way into the realm of digital options. Trend lines are established by linking the lowest lows within an upward trending graph or by linking the highest highs within a downward trending graph. In both cases, optimal points of market entry can be identified.
The basic strategy would be to connect the troughs in order to see if either an upward or downward trend is taking place. For a price trend to be recognized there will need to be at least three troughs or peaks (troughs for a bullish, peaks for a bearish). Once you’ve detected an established trend that appears likely to continue based upon the predominant market sentiment and other analysis, the trend line can then be utilized to decide when to enter the market.
To enter the market under bullish conditions, wait for the asset price to fall, moving back towards the line. When the price reaches the line and show indications of once again climbing, this will be the time to trade. For exiting, these lines act as areas of support or resistance are made use of to identify an area where the asset price is likely to change directions and drop. The utilization of a single line to find a trend can prove limiting, so consider additional analysis. You’ll want to know how the price is behaving, while eliminating as much excess market noise as possible.
Used as a stand-alone binary options strategy, this method will not always produce winning results. However, once paired with other indicators such as EMA’s, the win rate can be high. Another potential weak point would be if only two peaks or troughs were being used to identify a trend. This can lead to incorrect identification of trends, which could in turn provide incorrect entry and exit points. With that being said, trend lines are an excellent indicator for use by new traders, as they are not overly complex and can highlight price action for various time frames.
Applying trend lines as a base strategy is an excellent idea, but keep in mind that they provide very basic information. It is always wise to receive confirmation from at least one additional indicator. Ideally, you would use two indicators to verify the upcoming price movement and to help you to maintain an above average win rate. Also, do not forget about fundamental analysis, as economic data and financial reports will certainly impact entry points. Refer to an economic calendar daily to keep track of the latest information.
For novice traders, trend lines are an excellent first indicator. Not only are they simple to master, they also provide a solid foundation for learning how to quickly access market movements. Other indicators such as MACD and Stochastics will most definitely help you to identify prime areas of market entry, and should you trade Forex in addition to binary options, they will also help to pinpoint prime areas for market exit.
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